Thai Automotive Industry
Rebounds as Makers Project
Explosive Growth

Thailand’s resilient automotive industry sees 2012 as a
turnaround year of explosive growth and vibrant innovation.
Rebounding robustly from last year’s flood crisis, manufacturers
are confirming their confidence in the country as a leading
global production hub. New investments are springing up and
the domestic sales market sizzles with invigorated demand,
including heightened interest in eco-cars.

All automakers in Thailand have now restarted production after
the country’s worst flooding in half a century disrupted supply
lines back in October and November 2011. Even the hardest-hit
producer, Honda, was able to restart operations a few weeks ago
on 28 March. The rapid recovery by the Thai automotive industry
will translate into a boom in production, sales and investment
this year.

The expected upsurge was already being seen at the start of the
year. Chevrolet began 2012 with great momentum as its vehicle
sales in January were nearly double those of the same month
of last year. With factories coming back online, Thailand’s total
vehicle output in February also increased 11.6% year-on-year.

Extensive efforts have been made by the Thai government to
maintain investor confidence in the country as an excellent
production hub. A 350 billion baht long-term plan for managing
Thailand’s river basins is being hammered out so that industrial
estates and economic areas will be protected from any future
flooding. Prime Minister Yingluck Shinawatra emphasized
Thailand’s flood-prevention readiness on overseas trips
in January 2012 to the World Economic Forum in Davos,
Switzerland, and in March on roadshows to Japan and South
Korea.

Following such positive declarations by the government,
companies have confirmed their intention to both maintain
existing projects and launch new ones in Thailand. Among these,
Honda has announced that it will be pouring 12 billion baht into
new facilities. Isuzu is investing 6.5 billion baht to expand its
production capacity of pickup trucks this year. Toyota will spend
6 billion baht to boost production capacity of the petrol engines
used in its Corolla ZR. Thai Summit, one of the country’s largest
auto parts makers, is allocating 5 billion to expand its factories in
Chonburi and Rayong provinces.

All of this follows other major investments in Thailand’s automotive
industry over the past couple of years, when Mitsubishi allocated
US$500 million for an eco-car plant in Chonburi, Ford launched
construction of a US$450 million state-of-the-art plant in Rayong,
and Toyota also poured an additional US$133 million into factory
expansion.

Outlooks are bright indeed. Toyota, celebrating its 50th year
in Thailand, announced that it expects to produce 450,000
vehicles in the country during 2012. Ford aims to benefit from
the government’s first-time car buyer program, which offers
purchasers a 100,000 baht rebate, through stepped-up marketing
of its Fiesta sedans and hatchbacks. In yet another upbeat
announcement, vehicle parts maker Thai Rung Union Car is
projecting revenue growth of 33% to more than 3 billion baht in
2012. The company just recently opened a new 300 million baht
factory in Rayong.

A Core Industry in Thailand

Muscular and energetic, the automotive industry is a key driver
of Thailand’s economy. As the third-largest sector in the country,
it employs more than 400,000 workers and accounts for 12% of
GDP. Automobile production in Thailand is split almost equally for
domestic sales and exports.

The Bangkok International Motor Show is regarded the unofficial
start of the domestic buying season in Thailand, with the 33rd
version of the event slated
for 26 March-8 April 2012.
Organizers are predicting
more than 1.7 million visitors
and a record 40,000 vehicle
orders at the show. A total
of 21 manufacturers from
the United States, Europe,
Japan, South Korea and
India will unveil their latest
small cars, pickups and
luxury models. The spotlight
on eco-cars will be especially
intense.

As more consumers seek
fuel-efficient cars that are
also environment-friendly
with low CO2 emissions,
Thailand’s eco-car scheme
continues to grow. The Board
of Investment (BOI) launched
incentives to promote the
manufacture of energy
saving eco-cars in Thailand
back in 2009. So far, there
are five BOI-promoted
companies of eco-car
manufacturing. Nissan was
the first, introducing its March
model. Today it competes for
Thai market share with the
Honda Brio, Suzuki Swift and
Mitsubishi Mirage. Toyota
plans to launch eco-cars in
2013.

To spur development of
the segment, the BOI
offers special incentives to
companies that manufacture parts for eco-cars. This includes
granting a 90% reduction on the import duty of materials that
cannot be produced locally, enabling investors to cut sourcing
costs significantly. The BOI’s efforts in strengthening local
capacity for production of environment-friendly vehicles also
includes a proposal aimed at attracting Japanese makers of
batteries for electric cars to set up factories in Thailand.

To further accelerate a go-green movement in local society, the
government has also provided duty exemptions on fuel-efficient
NGVs (natural gas vehicles) and vehicles using the clean E-85
ethanol fuel blend.

Back on the Road to Top 10

The Federation of Thai Industries projects that annual production
of Thailand’s automotive industry will pass 3 million units from
2017, and the Thailand Automotive Institute is even more gung
ho by predicting that mark will be hit sooner in 2015.

With its good fundamentals and untiring optimism, the Thai
automotive industry is now back on track to enter the top 10 of
global producers in a few years. Thailand slipped temporarily to
14th place last year as the
flooding crimped output in Q4.
The country is expected to
return easily to the 12th spot
during 2012 as production
shifts back into high gear.
The Ministry of Industry
sees automobile production
soaring over 30% this year to
reach 2.1 million units, fueled
by rising demand and the
clearing of the flood-related
Q4 backlog.

In 2011, Thailand produced
1.46 million vehicles. One-
ton pickup trucks are the
local industry’s largest single
product category, making
up 61% of total automotive
output in Thailand, the
world’s biggest producer
and exporter of the line. The
country is also Southeast
Asia’s top sales market for
pickups. Among new models
introduced recently to the
brisk domestic market are
the Toyota Hilux Vigo, Isuzu
D-MAX, Chevrolet Colorado,
Ford Ranger, Mazda BT-50
PRO, Mitsubishi Triton and
Nissan Navara.

Thailand’s automotive
production last year was
divided as 899,200 one-
ton pickup trucks, 537,987
passenger cars and 20,608
commercial vehicles.
Domestic sales reached 794,081 units and exports totaled
735,627 vehicles. The top five car export destinations were
Indonesia, Australia, Japan, the Philippines and Malaysia, out of
the 170 nations to which Thailand exports vehicles.

The country is also a major motorcycle hub. Last year Thailand
manufactured nearly 2.05 million CBU motorcycles, with family
models accounting for 94% of production and sports models
constituting a lesser line. Honda accounted for the lion’s share,
producing 69%, Yamaha 24% and Suzuki 4%. Exports totaled
more than 1.21 million CBU and CKD units, going mostly to
Indonesia, the Philippines, Laos, Myanmar and Australia. The government promotes development of the motorcycle sector
through various incentives, including extended corporate tax
holidays for engine manufacturing projects.

Thailand’s total exports of vehicles and parts in 2011 were valued
at about 780.92 billion baht, with vehicles accounting for 45%
and parts 55%.

Brisk Activity at Parts Makers

As carmakers launch new models to meet rising demand in
Thailand, local auto parts producers are expanding capacity
and innovation capability to accommodate the big upswing.
Currently, Thailand has approximately 690 Tier 1 auto parts
suppliers and 1,700 Tier 2 and 3 suppliers. The breakdown of
the sector is 70% small companies, 20% medium-sized ones
and 10% large companies. Major foreign parts manufacturers in
Thailand include France’s Valeo, Germany’s Bosch, U.S.-based
TRW, Britain’s GKN, and Japan’s Denso, Mitsuba and Mitsubishi.
The Japan Automobile Manufacturers Association describes the
quality of Thailand-made automotive parts as the highest of any
ASEAN nation.

Auto parts and components represent a 400 billion baht enterprise
in Thailand. Local parts manufacturers supply virtually 100% of
the requirement used in the assembly of motorcycles, about 85%
of parts for pickup truck assembly, and nearly 70% of those for
passenger cars. To enhance development, the Thai Auto-Parts
Manufacturers Association is working on a blueprint for boosting
the technology, automation, innovation and human resources of
local parts and components suppliers through 2020.

The Thailand Auto Parts & Accessories show is also a boon to
sector growth. Scheduled this year for 26-29 April, the event
brings together hundreds of local and overseas exhibitors,
underscoring the country’s importance as a major auto parts
sourcing hub in Asia.

As innovation is a driver of today’s industry, the BOI is offering
special investment incentives for new projects in automotive electronic systems and other high-tech vehicle components.
Some examples of eligible activities are electronic fuel injection
systems, substrates for catalytic converters, continuously variable
transmissions, electronic stability controls and regenerative
braking systems.

Excellent Operational Advantages

Born in 1961 with just one assembly plant and output that year
of only 525 units, the Thai automotive industry has matured into
a world-class production base. Dubbed the “Detroit of the East,”
Thailand is a superior investment site for international carmakers
due to its strategic location at the heart of Asia, highly skilled
but affordable workforce, state-of-the-art industrial estates that
focus on the automotive industry, and strong network of parts
suppliers. The automotive cluster concept promotes efficiency,
lower cost and greater productivity as carmakers and their parts
suppliers are in proximity at these specialized estates. The
country’s extensive road network, well-developed seaports and
international airports also make exporting quick and convenient.

Recognizing the country’s operational advantages, nearly all
of the world’s leading vehicle makers, assemblers and parts
manufacturers have production bases and even R&D centers in
Thailand.

Automotive investors in Thailand will certainly see themselves
in the right place at the right time as the 10 member countries of
the Association of Southeast Asian Nations form the barrier-free
ASEAN Economic Community in 2015, creating a highly lucrative
single market with 600 million consumers. As an early sign of this,
a business delegation from the Union of Myanmar Federation of
Chambers of Commerce and Industry visited in February 2012 to
discuss trade opportunities with Thailand. The group expressed
strong interest in importing Thai-made one-ton pickups.

The delegation was invited to visit Thailand by the BOI,
representing yet another example of the Thai government’s
support in providing the local automotive industry with growth
opportunities.